Exam 3

Fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

The sum total of government taxing and spending, which determine whether government revenues exceed expenditures.

Government regulates the economy through its powers to tax and spend

Politicians play a major role

The Wall

Demand-side economics

a school of thought based on the idea that demand for goods drives the economy

Bob Dole

Supply-side economics

An economic philosophy that holds the sharply cutting taxes will increase the incentive people have to work, save, and invest. Greater investments will lead to more jobs, a more productive economy, and more tax revenues for the government.

• Trafficking and distribution routes

• Operation just cause (invasion of Panama -capture of Manuel Noriega - reduce drugs)

Three-prong strategy

• Suppression of production

• Interdiction of shipments

• Encourage help from other nations

Federal Reserve

the central bank of the United States

The country's central bank, which executes monetary policy by manipulating the supply of funds that member banks can lend.

• Acts on the economy through its 12 regional banks

- Open Market Committee: Considers whether interest rates are too high or too low and what adjustments should be made.

• Three primary tools:

- Buy and sell federal securities

- Change the interest rate

- Change the % of deposits that banks are required to hold in reserve

Chair of the Federal Reserve Board

Ranks among most powerful persons in government

• Close ties to the president

• Currently Jerome Powell

• Direct access to economic information

• Power to approve appointments of Fed Reserve Bank presidents

• Relatively insulated from electoral pressure

• Main concern since 1960s - control of inflation

Push-pull factors

Conditions that draw people to another location (pull factors) or cause people to leave their homelands and migrate to another region (push factors)

Truman Doctrine

1947, President Truman's policy of providing economic and military aid to any country threatened by communism or totalitarian ideology, mainly helped Greece and Turkey

Response to a Rising Soviet Threat

Truman Doctrine (1947): U.S. would seek to prevent other countries from falling to communism

Ad campaign for peace (Colombia)

Peace Agreement (2016)

End of 52-Year War: FARC & Govt.

FARC handed over all assets (reparations)

Guerrillas will serve sentences for crimes

Soldiers & police will face tribunals for war crimes

15 years of social programs & infrastructure investment

FARC is now a political party (guaranteed 10 seats for next two elections)

Patrick Leahy

President Pro Tempore of the Senate (Democrat)

Reciprocal Trade Agreements Act

This act reversed traditional high-protective-tariff policies by allowing the president to negotiate lower tariffs with trade partners, without Senate approval. Its chief architect was Secretary of State Cordell Hull, who believed that tariff barriers choked off foreign trade.

1939-1945: Intervention

Great Depression caused shift in public opinion on foreign policy regarding trade

Reciprocal Trade Agreements Act (1934)

Burden of federal taxation

Taxes are a much-debated topic in American politics

- Debate centers on three important issues:

• Tax base

• Tax burden

• Tax structure

Tax Base: The income, property, wealth, or economic activity that is taxed.

• More easily recommended than enacted into law (why?)

• Tax Preferences

• Special tax treatment received by certain activities, property, or investments

- Tax credit for college tuition

- Mortgage interest deductions- Deductions for charitable contributions

- Tax-Sheltered Annuity

Tax Preferences

Once government grants preferences to one group, it abandons principle of neutral taxation

• Granting preferences to some means that others must make up shortfall: hotel tax (advantage)?

Sin taxes: when special tax treatment is unfavorable

- A tax intended to discourage unwanted behavior

- Cigarettes and alcohol

- Marijuana in some states

Tax Burden: The total level at which Americans are taxed

• Federal individual income tax receipts (as percentage of GDP) rose by over 60 percent from 1950 to 1970.

• As long as living standards on rise, people willing to absorb higher taxes

• Sizable budget surplus in late 1990s encouraged proposals for tax reductions

• G.W. Bush & D.J. Trump - extensive tax cuts

Tax burden in U.S. tends to be lower than other developed countries

- Among the lowest of the 13 major industrialized countries

- Roughly 32 percent of GDP

- Other countries pay more but provide more services

• Often healthcare

- U.S. relies more on income and payroll taxes (others rely on VAT; corporate taxes)

Government promotion of business

Government-provided loans

Special tax breaks/credits

Traditional services: education, transportation, and defense

Tax burden shifted from business to individuals

Individuals would pay with higher prices regardless

The Budgetary Process

Federal government raises money from

individual income taxes

social insurance

retirement receipts

corporate income taxes make up about 10 percent of receipts

Budget: the government's annual plan for taxing and spending.

Fiscal policy: The sum total of government taxingand spending, which determine whether governmentrevenues exceed expenditures.

Poverty line

the official measure of poverty; calculated to include incomes that are less than three times a low-cost food budget

Poverty is more prevalent in the U.S. than many other industrialized countries

◦ 14.5% of Americans live in poverty (45.3 million people)

◦ 19.9% of children under 18 live in poverty

◦ 9.5% of people 65+ live in poverty

Poverty line: annual cost of a thrifty food budget for an urban family of four multiplied by three

◦ 2023 - $30,000

Social groups with higher rates of poverty:

◦ Children

◦ Female-headed households